US GDP revised upwards to 3%

• US GDP revised to 3%, up from 2.8%
• Jobless claims within expectations
• US dollar, stock markets are higher

US GDP shows a 3% gain.

The second estimate of US GDP for the second quarter, released earlier today, indicated that the economy expanded at an annualized rate of 3.0%, according to the Bureau of Economic Analysis (BEA). That was higher than the initial estimate of 2.8 percent and much higher than the 1.4 percent pace of growth in the first quarter.

The second estimate report is based on additional data that was not available for the preliminary report that was released in July. The BEA noted that the improvement in the second estimate was largely driven by an upward revision in consumer spending. At the same time, personal income was revised lower than the preliminary estimate.

Jobless claims fell to 231,000 in the week ended Aug. 24, down from 233,000 a week earlier. The market estimate was 232 thousand. The four-week moving average, which reduces week-to-week volatility, fell to 231,500, down from 236,250 in the previous release. The release of jobless claims has no impact on the markets.

Markets are nervously watching the next US employment report

Today’s GDP report confirms that the US economy is in solid shape. However, markets remain concerned about the US labor market. In July, non-farm payrolls fell to 114k, well below expectations and down from a revised 176k. Investors panicked that the US economy was headed for a recession and global financial markets tumbled in response to weak employment data. The market meltdown has even led to calls for the Federal Reserve to provide an unscheduled emergency rate cut.

The United States will release the August jobs report on September 6 ahead of the Federal Reserve’s funding decision on September 18, and the data will be a key factor in the Fed’s rate decision. The Fed has carefully laid out plans to cut interest rates by 25 basis points next month, but another weak jobs report could reignite market jitters and raise the possibility of a whopping 50 basis point cut. The Fed has signaled it plans to cut interest rates aggressively, and markets have priced in 100 basis points before the end of the year. With only three meetings left before the end of the year, that would mean a rate cut of 50 basis points at one of those three meetings.

Market Reaction – US dollar on the rise, stock markets show strong gains

Today’s upward revision to the GDP report provided a boost for the US dollar against major currencies. The USD/JPY currency pair saw the strongest move among the majors, gaining 0.49% immediately after the US GDP release.

In the US, stock markets opened a little while ago and reacted positively to the GDP report.

The S&P 500 rose 28 points (0.52%) to 5,622.

The Nasdaq 100 rose 184 points (0.95%) to 19,535.

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